Post-Election Economic Worries for Investors in 2021
Mike Dunn | Thought Leader | Mutualfunddirectory.org
The Butterfly-Effect and how it applies to Investors in 2021
The Butterfly-Effect is where small changes can lead to vastly different outcomes resulting in a chain reaction of significant unintended consequences. This past fall election season, a few votes here and there could and did create vastly different outcomes. Now the dust is starting to settle. As investors, we have to deal with our cards in our hands. (Pardon the triple entendre.) With the outcome of the election, how can you benefit as an investor? But first, what questions should investors be asking?
Note from the Editor (Mike): This channel tries to be one of your trusted sources of clarity and foresight of possible macroeconomic outcomes.
My lane is macroeconomics and geopolitical information for investors. My lane is NOT pure politics—there are many other venues for that. However, both politics and geopolitics have a direct bearing on macroeconomics on our investing decisions – now more than ever. Hence, to avoid guessing and retain my credibility as a resource, I did not post in October and November. There were too many unpredictable outcomes with too many permutations of the outcomes to discuss with my 30,000 readers. Again, I work hard to deliver you value from my lane.
What Should Investors Be Worried About After the Election?
As investors, it’s your job to stay ahead of the curve to find value and alpha before the crowd. Also, it is your job to recognize investing issues to make moves to protect your wealth.
Here is a list of what investors need to be concerned about in 2021:
- Fiscal Policy – With more of a focus on social issues, look for companies that will win in this regulatory environment.
- Post-COVID for Large Companies – In the Post-COVID reality, large companies are expanding with economies of scale, and smaller players are failing. Investors need to look for value opportunities.
- Post-COVID for Small Companies – On the other hand, as large companies in the Post-COVID economy expand and become larger, there will be more niches abandoned by large companies for smaller companies and startups to enter and thrive. Thus, you will need to look hard for the gold nuggets of opportunity in the niches.
- With Possible Urban Infrastructure Spending – Look for ways to invest in winners in government contracts.
- Will COVID induced company by company work-at-home initiatives reduce demand for downtown housing in urban areas. If the young workers do not need to walk to work, will that reduce the extra value of living in a small and expensive space in a downtown setting? Will people move to the suburbs and county to get more needed space since they are now working out of their home at a lower cost if they can now work anywhere? Real Estate in rural and resort areas is booming but will it continue? How will this affect your investing?
- Place your bets on commercial property investments. Will commercial rental office space and retail space come back, or is it mostly gone forever due to corporate work-at-home requirements? How will you bet?
2021 World-wide Macroeconomics Depends Partly on China
China may be the big winner in 2021, and countries fighting the PRC on their Belt and Road projects may be the losers. The geopolitical headwinds may diminish in 2021 for the PRC. As investors, “change is opportunity,” and 2021 will bring both change and opportunity.
Australia may also be a loser in 2021. Australia has been pushing back and standing up to China on iron ore shipments and on other issues. Moreover, Australia is planning to compete with China in steel manufacturing. It will be interesting if the US and Europe help Australia become another significant source of steel, or will the PRC eliminate a steel competitor? The price and availability of steel have economic, strategic, military, and geopolitical ramifications. As an investor, how can you benefit from this situation?
China has an increasing need for resources. Will the PRC’s efforts escalate to the point of requiring them to acquire resources by any means? Will the PRC take actions that the world community will deem unacceptable? For example, will the:
- PRC use military invasions by the PLA/PLAN?
- PRC continue to employ economic and military threats?
- PLAN use blockades to toll commerce in the South China Sea?
- PRC enable more fisheries being extinguished?
- Chinese companies continue their unregulated air pollution generated? And will more pollution regulations North American companies with Global Warming Carbon Taxes? Will this cause more regional BREXIT-style civil backlashes? How will this affect your investing calculus?
The bigger questions are, will there be any new direct military invasions to acquire resources. If so, what will the geopolitical cost be, and will there be a military response.
My guess is only 5 of my 30,000 investor readers have ever been in a Dollar Tree. But for those that have, you have noticed many sections of the store are low on inventory of items you would expect to be made in China. Will China’s ramifications from the PRC debt, COVID, geopolitical aggressiveness, and cashflow mistakes continue in 2021? Currently, many Chinese manufacturing companies cannot get short-term loans to make products to export. I’m cheap, so I love Dollar Tree stores.
Will Taiwan and the South China Sea Trade Routes see Military Action and how will that affect your investments?
Will Taiwan follow the fate of Hong Kong and become under the total control of the PRC? In 2020, many companies viewed the COVID situation as the last straw and started moving out of China in droves due to the increased risk, public perception, increased cost, the risk of financial loss, and supply chain unpredictability resulting from a military conflict. These are real risks and real costs.
If the PLA takes out the Taiwan Government, and possibly the Philippines, as a safe-haven from the risks of the PRC, how will this affect your investments? A PRC/PLA/PLAN invasion is a more dramatic change and more opportunity for manufacturing companies and companies that rely on the Pacific-Rim for their supply chain. If a percentage of this happens, what can you invest in to leverage this change?
The chance of military action against Taiwan may be higher than ever. The question is: Does the West still have the resolve to stop the PLA/PLAN in Taiwan? If not, then the next question is: does the West have the resolve to stop a commercial/military blockade of the South China Sea? If you think this scenario is likely, how do you profit as an investor? If you don’t believe this will happen, the question is the same. How do you profit as an investor?
In Summary to Start 2021 for Investors
Investors need to plan on “macroeconomic choppy waters” in 2021. There will be opportunity, however, good investment solutions may be harder to find.